When starting a small business, some business owners rely on their personal finances to help start it and their credit history has an impact on whether they will get a loan or not. This also applies when they apply for a business loan, as creditors look at the major stakeholders’ credit history before they give a loan. Therefore, small business owners must take ownership of their financial fitness in a personal and business capacity. Mike Anderson (NSBC Founder & CEO) spoke to Ans Gerber (Head Data Insights & Marketing Service) from Experian on how to handle your debt dilemma.
How are South Africans coping with the current economic climate?
To understand the current economic climate, we need to go back to when COVID-19 was present in the country. During this time, the South African government dropped interest rates to stimulate the economy. This impacted the consumers in that consumers who couldn’t get loans could qualify for loans and those that could already qualify could get larger loans than before.
Fast forward to September 2021 and there has been a rapid increase in the credit rate. Over the last couple of years, we have seen a sustained high interest rate. Which means credit is expensive. Secondly, the cost of living has seen a rapid increase. Even though it has come down slightly, it is not where the Reserve Bank would like it to be. So, this is where the current economic climate is.
And how do consumers deal with it? Through credit. In the National Credit Regulator’s quarterly report, they have data which shows consumers applying for credit at a staggeringly high rate. And to add further insult to injury, less than a third of the applications are granted to help consumers with their income gap.
What are the psychological factors behind excessive credit card use?
There are two key elements that drive people towards credit other than bridging the cost-of-living gap. The first element is keeping up with the Joneses. You need to be honest with yourself and decide whether the credit you want is for a need or a want. Another element is retail therapy. People buy goods to feel better about their life, but we need to be careful about this as it could cause more pain if the purchase is not necessary.
What resources are available help individuals to manage debt?
The first resource is to go to the Experian Up website and sign up for free. You can create a shortcut on your home screen to the website and it will navigate like an app.
The Experian Up website helps you to understand what is going on with your personal financial data and what your status is concerning credit before the banks pull up your records. The other benefit of the Up website is the educational information to help you to become financially fit. Lastly, when you register you will be able to get notifications if any new accounts are opened on your ID number. This can help in the fight against identity theft and fraud.
How can we promote responsible credit use and financial literacy?
This can be done by having financial knowledge accessible to those who want it. On the Experian Up website, there is a course when you register which will help to guide you about money and credit.
Another key element on Up is the budgeting tool which pulls in data from the credit bureau so you can see what debt commitments you have and if you are disciplined in using the tool, you will see an improvement in your financial health.
What important trends are we seeing?
Because of more digital transactions, people are at risk of identity theft and fraud. When you register on the Experian Up website, you will be notified when there is a new credit account opened on your ID number and if there is an enquiry which comes to the Experian Bureau the consumer will also be notified.